Can You Afford Your Retirement?

Monthly income derived from work is one of the most common ways that people make a living. What happens when this income is taken away from you or you retire and become unable or unwilling to work?

The Boston College Center for Retirement Research’s National Retirement Risk Index makes a pretty bleak statement which indicates that more than half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65—which is above the average age at which people are currently retiring. With average life expectancies on the rise, it is also prudent to ensure that our retirements will last longer.

How do you know if you can afford retirement? One of the ways is to calculate whether you’re on track for your current age. Fidelity Investments suggests you should have 8 times your annual salary by age 67 to meet your basic income needs requirement. To accomplish this goal, you should have one times your annual salary at 35, two times your annual salary at age 40, three times your annual salary at age 45, four times your annual salary at 50, five times your salary at 55, six times your salary at 60, and seven times your salary at 65.

Retirement Investment

One way to be able to reach this desired status is to increase your savings rate by 1 percentage point each year until you reach the desired annual savings rate. You probably won’t miss the money, but it will add up quickly. In addition, pay of your debts if you have any, so you don’t use your pension money for anything other than living expenses.

You should also invest in long-term care insurance. The reason? Many people often blow their retirement funds on major health operations at this age, which leaves them little enough wiggle room to retire comfortably. Investing in health by making tiny tweaks to your current lifestyle can make a big difference and pay-off in the long run.

As a typical employee, you generally make anywhere from S1,500 to $3,000 a month. It’s a good idea to have anywhere from 5 to 10 years worth of your monthly income in a bank. But if you expect to have a part-time job/ tutorial/ consultancy after you retire, you can get by with less.

Sources of Income after Retirement

1. Pension

A pension is a fund into which a sum of money is added during an employee’s working years with the company. Think of it as a “defined contribution plan” where a fixed sum is invested by you and/or your employer and becomes available to you at retirement age. This will be paid in regular installments after retirement.

2. Social Security

Social Security (or GOSI in Bahrain) is an arm of government that administers a social insurance program consisting of retirement, disability, and other sort of claims that people may have. For retirement, governments usually work in conjunction with employers to pay the individual employee a fixed monthly sum for the rest of their natural lives.

3. Consultancy

With years of experience in the field that you are currently working on, many companies would be eager to gain your experience. Setting up a consultancy is ideal if you aim to cash in on your knowledge and it will create new contacts for you to set up a future business.

4. Property/ Rentals

It’s a good idea to start investing in property which you can rent out and/or leverage as income while you start getting used to retirement. You can even just rent out your house or portions of it through AirBnB.

Bottom line: With the advancement of science, people are now living healthier, fuller lives after 60. Many companies don’t necessarily sack their employees at that age. Instead you can still work at a relaxed pace, work from home, and/ or take in consultancies. If that’s what you need to maintain your standard of living, then by all means go for it. The more time you defer your retirement, the more time you have to grow your nest egg.